For Hope Call it the trickle-back-in theory. Hotel experts are starting to see a return of market stability—with no help from the folks in Washington, DC Photo: Michael Ian

If corporate budgets are the first victim of a recession, it follows that business and personal travel are the second—a reality that drops directly to the bottom line of the lodging industry. But much has happened between the Americas Lodging
Industry Summit in San Diego this past January—with its tone reflecting a downturn
that had not yet let go—and the NYU Tisch Center Hospitality Conference. The mood
was much more upbeat for that event, which was held this past June at the Marriott
Marquis Hotel in New York City. That cheerier tone is clearly evident in most of the
comments made at REAL ESTATE FORUM’s Annual Hotel Power Panel, held in conjunction with the conference. Clearly, as most of the panelists acknowledged, we are not
yet out of the woods, but despite the tentative nature of the recovery to date and the
ongoing threat of a double dip, the opportunities are beginning to show themselves—
and therein lies reason to hope.

JOHN SALUSTRI: How did you get
through 2009, and what did you learn?
MICHAEL FISHBIN: We spent a lot of time
with the C-Suite, talking about the capital
agenda—understanding how to preserve,
optimize, raise, invest and enable capital.
JOSEPH BERGER: We focused on partnering with our ownership groups to survive the
downturn. We also focused on making debt
service and cash flow.
WARREN FIELDS: It was a compromise
year, trying to figure out how to work with
the customers, branch partners and our
owners. As Joe mentioned, we focused on
maintaining the assets and convincing lenders we were preserving collateral.
LESLIE NG: The name of the game for us,
as well, was preserving capital and finding
ways to deploy it to maintain assets, or—on
behalf of our owners—deploy what limited
resources were available while trying to make
debt service.
LANCE SHANER: It was all about cash flow.
We developed an economy budget in which
we cut $8 million in costs, shared fairly over
the company. We cut capital spending, froze
salaries and conserved enough cash to operate and to fund our debt. I’m proud of that.

ANDREW C. WILLIAMS: The brands like
Hilton were terrific in helping us minimize
operating and capital costs without jeopardizing the brand. It also confirmed that
our focus on upper-upscale and full-service
hotels is right. And we’re seeing the benefit
of that in the improvement in the industry.
There’s a flight to quality that those upper-upscale, boutique-type hotels engender.

SALUSTRI: What are today’s sources of
capital?

WILLIAMS: Much of it is coming from well-capitalized REITs. But there’s a broader-based desire to get into the market through
pension-fund money. There’s also a lot of
money from Asia. So there’s ample cash and
it’s certainly driving pricing. For a solid asset,
you can see cap rates of 6% to 8%. But
there’s no financing for development today.
SHANER: The cost of capital in the public
markets has come down and multiples are
up 3% or 4%. You may see a shift to public
firms dominating on the acquisition side.
NG: Another big factor is the availability of
debt. As the debt markets come back, and
they are coming back slowly, the transaction
volume will be there.

FISHBIN: The transactions we’ve worked
on over the past six months, both M&A and
single asset, have all been equity. The buyers anticipate some opportunity to finance
at a later date.

SALUSTRI: Where are you seeing
opportunities, in assets or debt?
FIELDS: It’s really in both. There’s a market
for the loan-to-own, and the discounts are
attractive to some individuals, where they’re
saying, “Look, if I get paid off, I make a very
nice return at maturity, or I’ll go through the
brain damage and foreclose.” And then you
have the servicers, who are incentivized to
hold. There are plenty of opportunities for
both asset and debt.